REFILE-UPDATE 1-Samsung challenge: sold the phone, how to keep the customer

By Jeremy Wagstaff, chief Asia technology correspondent

Sept 6 Samsung Electronics has built
global leadership in mobile phones, but in a fickle industry
looks more vulnerable than its nemesis Apple Inc
without an 'ecosystem' - software, services, content and
customer support - to keep its users loyal.

"They need to move out of that mentality of just selling
people a device," says Rachel Lashford, Singapore-based managing
director of mobile for Canalys, a consultancy. "They need to get
their head around the idea that they're no longer just a
hardware company."

The ecosystem standard has been set by Apple: offering
mobile users downloadable programs and content - such as iTunes
for music and the App Store for programs - which are best, and
often only, accessible via and across Apple devices. This binds
users to Apple and makes them more likely to buy another Apple
device - an iPhone user buying an iPad, say.

"Apple's greatest achievement beyond the design of the
device has been the development of its ecosystem," said Scott
Bicheno, UK-based senior analyst at Strategy Analytics.

While Apple has been slow to make some of these services
available in some parts of the world - it only recently unveiled
its iTunes Store across much of Asia, nine years after its U.S.
launch - it is still ahead of rivals.

Samsung's efforts to build something similar have been at
best halting.

The latest version of Music Hub, a service combining
downloaded music and streaming, is only available for users of
its new top-end phone, the Galaxy S III. Early reviews are
mixed. It is also building an ad network via a partnership with
OpenX, a service that Mar Pages, Singapore-based principal at
Delta Partners, likens to Apple's iAd. These services allow
application developers to embed adverts in their software.

Samsung said Music Hub, which is available in close to three
dozen countries, will be expanded to other markets and also be
available in more smartphones as well as Internet-enabled
televisions and computers.

"Samsung is doing our best to offer best content and
services to our customers... We are in partnership with leading
global developers to cooperate in content and application
development and plan to further improve our offerings," it said.

DILEMMA

But there's only so much Samsung can do to build on top of
Google's open platform Android operating system, which
already offers users well-established services such as Dropbox,
which moves files seamlessly between devices and users.

"I wonder what Samsung could do which would offer
conspicuous value over the likes of Dropbox," said Strategy
Analytics' Bicheno, noting Apple's ecosystem is largely a way to
sell hardware. "This is the dilemma they face."

It wasn't always so. In 2010, Samsung launched its own
mobile operating system called bada, and wooed developers and
users with tools and an app store. Bada has steadily gathered
users but accounts for less than 3 percent of devices shipped,
according to technology consultancy Gartner. Android accounts
for nearly two thirds.

The company's efforts to make bada more popular were
hampered by its own focus on hardware sales, said Karthik
Srinivasan, who worked as a product manager at Samsung's Media
Solutions Center in Bangalore. Hi s team would submit proposals
for services and apps only "to be stumped when the question came
back from Korea: How many more devices can you sell next year
based on these services?" he told Reuters.

Samsung has not abandoned bada, but its emphasis on Android
alienated its fan base and developers. "The top management may
have had focus," said Srinivasan, who quit the company last
year, "but it was dispiriting to see the company was making very
good Android devices and promoting them more than bada ones."

Samsung said in January it planned to merge its operating
system with Tizen, an open source platform promoted by Samsung
and chipmaker Intel Corp. It hasn't issued a press
release about bada since November 2011.

OLYMPIC SPRINT

Samsung can be fast and decisive where it senses an
opportunity that fits its broader strategy of brand building.

When Bangkok-based start-up Fingi turned to Galaxy
smartphones for its hotel concierge service this year, Samsung's
local operation was quick to help. Fingi's software allowed a
Thai hotel to offer guests a Galaxy on check-in which they could
use to open doors, control air conditioning, lighting and TV and
order room service.

When Samsung's UK operations heard about Fingi they decided
to use it to help promote the Galaxy S III at the London
Olympics, said Carl Rubin, Fingi's vice president of business
development. Within weeks, he said, Samsung had struck deals
with hotels and helped set up the technology to make it work.
"They turned on a dime and got this done," he said.

The Fingi initiative made use of the near-field
communication chip inside some Galaxy devices, a hint of where
Samsung sees more opportunities. Delta Partners' Pages says
Samsung recently hired one of Visa Inc's mobile payments
executives and patented the words "Samsung wallet."

SAMSUNG STORES

But its efforts to build a direct and binding relationship
with users in the way Apple has done have been less convincing.

It has flagship stores in several countries which share
Apple's light tones and open invitations to play with devices,
but a recent lunchtime visit to Singapore's main store saw only
a handful of visitors and a couple of staff. A cleaning woman
was mopping the floor.

Singapore has also pioneered improved customer service where
staff will pick up an errant device from the user and offer a
loan unit while it's under repair. But a member of staff at one
of the two service centers said loan units weren't always
available.

Similar issues can be found online. An important part of
keeping mobile users happy is ensuring their device's core
programs are up to date. The most popular feature on one Samsung
fan website, SamMobile, is a twitter feed alerting users to when
such software updates are due. It has 20,000 followers and is
updated more than a dozen times a day. Samsung's official
equivalent feed has only 3,307 followers, and was last updated
in December.

The owner of SamMobile, Rotterdam-based Danny Dorresteijn,
says he has tried in vain to forge a closer relationship.
"Samsung is not a big fan of us," he said. But he's hopeful.
"Everything takes time."

Indeed, there are signs that Samsung is learning it needs to
use social media better. W hen two Indian bloggers flown by
Samsung to a technology show in Berlin last week complained
online that they had been stranded because they refused to wear
a Samsung uniform and tout Galaxy phones, the company was quick
to apologise.

Last month, Samsung hired Damien Cummings, Dell's
former Asia online director, for a new social media marketing
role. In a blog post, Cummings said he aimed to "help transform
Samsung into a digital powerhouse."

BRAND LOYALTY

Samsung does appear to be slowly winning people over.

Surveys of users in Britain and the United States by
Strategy Analytics concluded that while 51 percent of Apple
users would replace their Apple device with an Apple device,
they were only slightly less likely to switch and buy a Samsung.

A bigger problem for Samsung, says David Mercer, the
co-author of the Strategy Analytic surveys, is that there's
little sign that user loyalty to Samsung phones translates to
buying other Samsung products. A Samsung phone user may buy
another Samsung phone, "but they won't automatically buy a TV,"
he says.

Given that Samsung is the world's largest TV maker, that's a
significant miss. "That indicates those important branches of
the company have continued to do their own thing," says Mercer.

It also raises questions about Samsung's efforts to build an
ecosystem beyond mobile phones to embrace other parts of its
consumer electronics business, especially so-called smart TVs -
Internet-connected TVs that can work more like computers,
running apps, storing and downloading content and, crucially,
interacting with other consumer devices.

It's not that Samsung isn't busy working with TV stations
and other service providers to build smart TV services. In the
past week, it has announced deals with TeliaSonera and
France TV in Europe, and Alt Media Sdn Bhd in Malaysia. The
problem, Mercer says, is that consumers need to be convinced its
useful. "Once they have it, they love it," he says.

At the heart of Samsung's challenge is to weave these
products together with content and services that make it hard
for users to jump elsewhere when they tire of their devices.
While Samsung has long mastered engineering, it's only recently
woken up to the fact that users want something more.

"Samsung will start to realise, if they haven't already,
that they have to lock people in with some kind of ecosystem,"
said Napoleon Biggs, head of digital integration for Asia at
Fleishman-Hillard. "How else will you keep people's loyalty?"

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